THE saga of reverse mortgages continues this week. The following are from letters received on the subject. I will address some of the issues they raise next week.

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If Harry and Sally (parents who own a valuable house) decided to use the proceeds from a reverse mortgage to help out their children, then that’s their choice. As long as the obligation to repay the mortgage only begins after their death, this seems OK to me. Without reversible mortgages, if Harry and Sally wished to help out their children they would have to take out a conventional mortgage, in which case they could lose their home if they, or if their children failed to make the mortgage payments. Like you, I would want to take a very cautious approach to any proposal that may put at risk the family home of our senior citizens.

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I was at a meeting arranged by Mr. Dale Butler when Rodney Smith made a presentation. There was logic in his argument. Consider the following and give me your reply.

A married couple aged 60 have an unmortgaged property valued at $1 million.

They take $250,000 out as a reverse mortgage and travel the world.

They have two children, neither of whom are bank robbers or incarcerated in a psychiatric facility and both of whom love their parents.

The old couple make out their will to the children, splitting the estate in half.

The old couple see the world they never saw before and die peacefully aged 65.

The children now assume a $250,000 mortgage between them and can do what they want — buy each other out, sell the property or whatever.

What’s wrong with that scenario?

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The real problem, of course, is that many children are not taught from the beginning that they are responsible for themselves and their own fortunes. My own daughter was quite angry that I refused to go into debt to fund her college education in its entirety (when she was able to acquire scholarships) as many of her friends’ parents did. When she graduated, however, the sense of accomplishment she had for “doing it on her own” was great. I thought the lesson important enough that I did not dilute her pride by pointing out all thathad contributed.

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The reverse mortgage is indeed a medium- to long-term loan (i.e. a mortgage). The difference is that there are no current payments and thus no risk of default. If the children squander the proceeds, then they are simply squandering their own potential inheritance. However, the home which the parents “borrowed against” to obtain that money would not be in jeopardy or liable to repossession — until the time they die and the estate does not have enough money to pay back the reverse mortgage plus interest.

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I read your article and wondered if the title might have been better if it referred more to getting in hot water with one’s children over finances. For a retired couple, a reverse mortgage can be an option to living well in the later years, versus dying with a large asset to leave to one’s heirs.

Oh, and another thing. I would prefer to have positive cash flow on an interest-only mortgage loan than pay twice as much monthly on interest and principal. What does it matter what you owe on your house at death? I live in New York and housing has been appreciating for many, many years.

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The purpose (of a reverse mortgage) is to provide the retirees who are property rich and cash poor with an income so that they can continue to live in their home. Inflation and maintenance thereof can eat one alive. When the retiree dies, the beneficiaries get the balance after the deduction of the amount paid out, from the value of the home. I am assuming that terms are negotiable. I thought this was Dale Butler’s purpose — not mortgages for parents to take out for their children?

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My wife and I are in our 70s, 71 and 75 respectively. We fall in the category of “land rich and cash poor”. We have five children and two of them are having difficulty in procuring a mortgage. What do you suggest?

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I work with older people. Too often, I see them being asked to sign documents with consequences that they do not understand.

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Two comments I want to share with you. The first pertains to where you basically said that “owning a home was not a big deal”. This sentiment I disagree with, for home ownership is the most powerful instrument for legacy-building that you will find anywhere.

Although I recognise that many Bermudians will never be able to enjoy home ownership, it is something to which we must continue to aspire. To feel defeated here leads to runaway consumerism — the likes of which we currently see amongst Bermudians.

My background is in wealth management, and the core of all family fortunes with which I have worked has been the existence of real estate and the constructive use of leverage to further develop wealth legacies.

Secondly, your note this weekend regarding reversible mortgages had many valid points. And in concept, I agree with many of the points you make. You did not consider, however, seniors who need cash, not to support the needs of their children, but simply need the cash to live comfortably and provide for food, health insurance, medications, travel and the other “benefits” of old age.

Property is an investment; it should be treated as such. Draw from it. Too many seniors are “property rich and cash poor”. I see reverse mortgages as a solution to help some of these people. I am strictly against it to satisfy the entitlement demands of one’s children. Why pass on property to children completely mortgage-free, when the last 10 years of one’s life is in some cases poverty stricken?